The envelope and label manufacturer—though an award-winning digital marketer—blames a shift of printed products to digital alternatives as a key factor in its sales decline.

Cenveo Inc. pointed to a world shifting from paper-based to digital products as a chief contributor to its declining sales and resulting Chapter 11 bankruptcy filing last week. But the internet also gives back and investing in e-commerce is an important part of Cenveo’s business strategy as stated in its most recent earnings report.

Beginning around 2006, Cenveo, a global printer and manufacturer of envelopes, labels and other business products, bet big on postal or “snail” mail, buying 16 envelope manufacturers, printers or label makers, including the $430 million purchase of Cadmus Communications Inc., the world’s biggest printing company serving scientific, technical and medical journals.

There’s a financial fix here, but how do you stem a sector decline?
Bill Popper, director of research
Clearview Trading Advisors

Such spending on traditional print media increased debt it now says it can’t afford to pay.

The company said it plans to restructure its balance sheet while under court protection. Cenveo has a deal with a group of first-lien creditors and has been trying to convince its biggest second-lien noteholder, Brigade Capital Management LP, to sign on as well. Brigade holds more than 66% of Cenveo’s second-lien and 16.1% of its first-lien notes. First lien refers to debtors with the highest priority for repayment in case of default.

The company listed more than $1.4 billion in debts and about $790 million in assets in its Chapter 11 bankruptcy petition filed in White Plains, N.Y. On Feb. 5, Stamford, Conn.-based Cenveo reported the bankruptcy court granted the company permission to borrow $190 million through an asset-backed loan and $100 million through a term loan.

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In announcing its financial restructuring under Chapter 11, Robert Burton Sr., Cenveo’s chairman and CEO, said “Since 2005, we have transformed Cenveo from its print-focused roots into the largest envelope manufacturer and one of the largest labels manufacturers in North America.” The restructuring “will significantly reduce the amount of debt on the balance sheet, increase cash flow available to invest in the business, and create a stronger and more competitive company in the future,” Burton said.

“There’s a financial fix here, but how do you stem a sector decline?” asked Bill Popper, director of research at New York-based broker-dealer firm Clearview Trading Advisors. “The problem is the world is passing them by.”

Reflecting a growing emphasis on e-commerce, Cenveo cited multimedia marketing programs in growing online revenue 29% in 2016 in its Lightning Labels unit. The social media and search marketing efforts played a big role in making the unit, located online at LightningLabels.com, a finalist for the 2017 B2BecNews B2B Marketer of the Year Award, an award it won in 2016.

Cenveo does not break out e-commerce sales but in its third quarter 10-Q earnings statement for the period ended Sept. 30, 2017, the company reported:

  • Total sales of $329.5 million, down 13.9% from $382.7 million in the same period of 2016.
  • Envelope segment sales of $156.5 million, down 14.6% from $183.2 million.
  • Print sales of $109.4 million, down 14.4% from $127.8 million.
  • Label sales of $63.6 million, down 11.2% from $71.6 million.
  • Net loss of $28.1 million compared with net income of $9.4 million in the prior year period.

For the first nine months ended Sept. 30, Cenveo, No. 123 in the 2018 B2B E-Commerce 300, reported:

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  • Total sales of $1.01 billion, down 12.9% from $1.16 billion in the prior year period.
  • Envelope sales of $483.9 million, down 12.7% from $554.3 million.
  • Print sales of $327.0 million, down 14.1% from $380.8 million.
  • Label sales of $200.0 million, down 12.2% from $227.8 million.
  • Net loss of $38.6 million, compared with net income of $68.1 million through the first nine months of 2016.

Cenveo reported the envelope business represented 47.9% of its revenue through the first nine months of fiscal 2017, commercial printing accounted for 32.3% and label manufacturing for 19.8%. The company employs about 5,200 people.

Shares fell to around 37 cents in New York trading Tuesday, from a 2017 high of $7.59.

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